McDonald's NZ beats Burger King to post larger profit, sales in 2016

In the battle of the burgers, McDonald's has come out ahead of Burger King in New Zealand, although both fast-food chains lifted revenue and profit over the course of 2016.

According to their financial statements, sales at McDonald's Restaurants New Zealand rose 6.5 percent to $259.7 million in calendar 2016 while Burger King's New Zealand revenue rose 4.2 percent to $191.5 million. McDonald's local profit rose 47 percent to $52.8 million in 2016, while Burger King turned to a profit of $3.8 million from a loss of $7.6 million in 2015.

McDonald's owns around 15-to-20 percent of its 167 stores, with the remainder owned and operated by franchisees, and its sales are made up of company-owned restaurants and fees paid by franchisees. Its footprint is twice that of rival Burger King, which has 83 stores nationwide. The local unit of McDonald's introduced all-day breakfast in May 2016, a move which proved popular in the US when it was launched in October 2015, pushing sales there to the best quarter in nearly four years.

The Kiwi appetite for fast food is showing no signs of slowing, and the local fast food market is increasingly competitive, with NZX-listed Restaurant Brands, which operates KFC, Starbucks, Pizza Hut and Carl's Jr, lifting annual sales 28 percent to $497.2 million in the latest year. BurgerFuel Worldwide, which listed on the NZAX in 2007, had a 7 percent gain in sales in its first half and narrowed its net loss.

The local McDonald's division paid $30 million to its US parent, unchanged from a year earlier.

The Burger King profit was its first under the ownership of US private equity firm Blackstone Group, although the holding company - Tango Holdings NZ - didn't declare any dividends and got a $92 million equity injection from the issue of 61.4 million new redeemable preference shares and the conversion to equity from debt of 22.7 million other redeemable preference shares.

That fast food chain's total equity was $74.6 million as at Dec. 31, and it had a net working capital deficit of $10 million at the balance date, leaving it dependent on having access to banking facilities. Still, Burger King's New Zealand directors adopted a 'going concern' assumption with due to the positive earnings before interest, tax, depreciation and amortisation of $24.1 million in the year and operating cash flow of $31.2 million.

McDonald's NZ spent $54.8 million on its employees in 2016, up 1.2 percent from a year earlier, while Burger King NZ spent $55.1 million on salaries, up 5.3 percent. Both companies are currently under pressure from Unite Union, which represents fast food workers, over how they calculate annual leave for part-time workers.

Unite's national director Mike Treen said the two are "sticking their heads in the sand" on the issue and waiting for a report from the Ministry of Business, Innovation and Employment (MBIE), due soon, for guidance, although the union will push the fast-food chains in upcoming negotiations.

Burger King NZ's cash flow statement shows it paid no income tax in 2016, despite recognising a $1.17 million tax expense in the year. It paid $62,284 in tax in 2015, a year when it reported a tax benefit of $381,854. The company had $1.99 million in deferred tax benefits as at Dec. 31, 2016, with a further $378,466 benefit to be recognised in future. It paid its directors and other 'key personnel' $1.41 million in the year.

McDonalds NZ paid $21.6 million in tax in 2016, while recognising a tax expense of $23.5 million. In 2015, it paid $19.7 million in tax, while recognising an expense of $17.8 million. McDonald's NZ held $14.96 million in deferred tax assets at the end of the year, up from $13.6 million a year earlier.

The directors of McDonald's NZ noted that the company is in 'economic uncertainty' due to its net current asset deficit. The fast-food retailer had $35 million in current assets and $259.7 million in current liabilities, with the bulk of the liabilities interest-bearing loans. However, the directors "have received assurance from the ultimate holding company", the US-incorporated McDonald's Corp, of continued support.